Aid & economic growth

Abstract

This Master's thesis examines the complicated dynamics between foreign aid and economic growth. Extending on the works of Burnside and Dollar (2000) and Dalgaard et al. (2004), it scrutinizes the interaction terms of aid with economic policy and aid with geographic factors (percentage of land in the tropics). The thesis reconstructs growth models employed by Burnside and Dollar (2000) and Dalgaard et al. (2004), with data appending the original datasets from 1993 to 2020, broadening the analysis beyond the original studies. It tackles the issue of endogeneity in growth regression models and re-evaluates the influence of policy variables against geographic characteristics in assessing the effectiveness of foreign aid. Findings indicate a transition in significance from policy variables to geographical factors, suggesting a need to reassess aid distribution policies. This research supplements discussions on international development and economic policies, emphasizing the significance of geographical and structural influences on the impact of foreign aid on economic growth.